Arista Networks, Inc.

Welcome to the first quarter 2020 Arista Network's financial results earnings conference call. During the call, all participants will be in a listen-only mode. After the presentation, we will conduct a question and answer session. Instructions will be provided at that time. If at any time during the conference you need to reach an operator, please press star followed by zero. As a reminder, this conference is being recorded and will be available for replay from the investor relations section at the Arista website following this call. I will now turn the call over to Mr. Curtis McKee, Director of Corporate and Investor Development. Sir, you may begin.

Curtis McKee Thank you, operator. Good afternoon, everyone, and thank you for joining us. With me on today's call are Jay Shriyalal, Arista Network's President and Chief Executive Officer, and Ida Brennan, Arista's Chief Financial Officer. This afternoon, Arista Networks issued a press release announcing the results for its fiscal first quarter ending March 31, 2020. If you would like a copy of the release, you can access it online at our website. During the course of this conference call, Arista Networks Management will make forward-looking statements, including those relating to our financial outlook for the second quarter of the 2020 fiscal year, longer-term financial outlooks, the potential impact of COVID-19 on our business, industry innovation, our market opportunity, the benefits of recent acquisitions and the impact of litigation, which are subject to the risks and uncertainties that we discuss in detail in our documents filed with the SEC, specifically in our most recent Form 10-Q and Form 10-K, and which could cause actual results to differ materially from those anticipated by these statements. These forward-looking statements apply as of today and you should not rely on them as representing our views in the future. We undertake no obligation to update these statements after this call. Also, please note that certain financial measures we use on this call are expressed on a non-GAAP basis and have been adjusted to exclude certain charges. We have provided reconciliations of these non-GAAP financial measures to GAAP financial measures in our earnings press release. With that, I'll turn the call over to Jay Shree.

Thank you, Curtis. Thank you, everyone, for joining us this afternoon for our first quarter 2020 earnings call. First, I would like to address the coronavirus global pandemic, the world's largest in 100 years. Clearly, this is unlike recessionary events including the dot-com crash of 2001 or the financial recession of 2008, both of which were sector-specific. At Arista, we are focused on the welfare of our employees, supporting our customers, and helping the local community. We recognize our role and responsibility in supporting global communications and cloud infrastructure during these mission-critical times. We're adjusting to the new norm of real-time audio and video communications. Our support caseload has doubled during the initial weeks, but has now stabilized as we help our customers in their time of need. Getting back to Q1 specifics, we delivered revenues of $523 million for the quarter, with a non-GAAP earnings per share of $2.02. Service contributed approximately 21% of revenue, up from 19% last quarter. Our non-GAAP gross margins were 65.6%, influenced by a healthy software and services mix. We registered a solid number of million-dollar customers as a direct result of our enterprise traction. In Q1 2020, Cloud Titans was our largest vertical. The enterprise is now consistently the second largest, followed by the Tier 2 specialty cloud providers, and financials tied for third place, and the service provider at fourth place. Due to popular requests from our analyst friends, we are now providing more color into our annual trends across three main sectors. Cloud titans, approximately 40% of our mix, enterprise, including financial services, approximately 35% of our mix, and providers, which includes both service provider and cloud specialty provider, approximately 25% of our mix. In terms of geographies, Q1 2020 mix had international contribution at 23%, with the Americas at 77%. In terms of mergers and acquisitions, we closed the acquisition of big switch networks in February 2020. We are experiencing early traction and complementarity with Arista's data analyzer, DANS, offering and entering into the network packet broker space. We are extending in the campus our cloud networking principles, introducing exciting cognitive Wi-Fi suite of features with the support of Google Hangouts, Microsoft Teams, and Zoom, as well as open config-based automation model. Arista's cognitive campus portfolio was launched last summer to address the explosion of clients, users, and IoT devices with software-driven automation. We are well on our way to meeting our first year's 100 million target, ending Q2 2020. While we are pleased with this traction, we must all exercise patience as we cultivate this part of our business. It took us more than seven years to build our cloud business to 500 million, and we believe that our enterprise prospects will take time, especially in this COVID-19 era. We are only just beginning our first year of a five to seven year journey to disrupt 30 years of legacy and status quo. COVID-19 has required us to respond rapidly to changing events. In accordance with the country-specific shelters and orders, we have closed all our offices to assure employee health and safety. We are consequently experiencing supply chain constraints, and we are managing our global capacity with our contract manufacturers in San Jose, Mexico, Malaysia, and coping with some inventory and component shortages. Lead times vary and have doubled recently for some of our popular products. Arista is working in lockstep with our customers in supporting their business continuity and planning throughout 2020. Our visibility, especially into second half 2020, is pretty low. The number of confirmed COVID-19 cases has increased sharply in April. Until the economic environment permits us to resume more normal routines, we have limited visibility to demand. It is clear that we live in uncertain times, and therefore with what we know at this time, it is prudent to assume our annual 2020 revenue may decline versus our 2019. We expect to manage our overall business this year at Arista's 2018 levels, and we'll continue to monitor this closely. Arista, together with the entire business sector and global supply chain, is coping with multiple unknowns in the midst of a global pandemic. We expect to see some short-term strength in Cloud Titan offset by prolonged sales cycles with new prospects in the campus and enterprise sector. We remain confident that the combination of our product superiority, commitment to quality, with the lowest critical vulnerabilities, and the highest net promoter score of 76 is very compelling in the network industry and of great value to our customers. Our recent market share gains, customer intimacy, and operating leverage will navigate us through these unforeseen circumstances. We expect to emerge stronger than many of our industry peers as we migrate to modern networking. Before I turn it over to Ida for financial specifics, on behalf of Arista, I truly wish all of our listeners, employees, and their families, customers, and well-wishers be safe and healthy. Ida?